Existing mutual fund investors would need to evaluate their schemes if they change their strategies substantially in order to ensure they are still in sync with their financial goals and asset allocation
Kayezad E. Adajania | Last Published: Tue, May 01 2018. 10 30 PM IST | LiveMint
HDFC Prudence Fund (HPF), the country’s largest equity-oriented mutual fund scheme with assets close to Rs37,000 crore, will now be known as HDFC Balanced Advantage Fund and can switch entirely between equities and debt. Until now, it could invest only 40-75% in equities. On 25 April, HDFC Asset Management Co. Ltd announced plans for many of its schemes, as part of the ongoing merger and re-categorisation exercise.
Most other fund houses, too, have announced their plans to re-categorise their schemes. If you don’t agree with your schemes’ new form, you have a chance to exit without paying an exit load. Here’s how you should decide what to do.
Your scheme could change…
If there is no change to your scheme, you have nothing to worry about. But if your scheme is about to change, check how big or small it is. For instance, if you own a large-cap fund that is set to become a large- and mid-cap fund or a multi-cap fund, it won’t matter much. In fact, this particular move is good, said Prateek Pant, head of product & solutions at Sanctum Wealth Management. “Going ahead, it will get difficult for large-cap funds to outperform their benchmark indices. The definition of large-cap fund has narrowed down and benchmarking performances against total returns index would make things tougher for large-cap funds,” he said. Read more here.
If your scheme undergoes a big change, evaluate. For instance, SBI Treasury Advantage Fund, which will be known as SBI Banking and PSU Fund, was meant for short-term investments. Now, its strategy would be to invest in debt scrips of state-owned companies and banks. “If the risk profile of a scheme changes, look at it again. If it no longer meets your purpose, leave it,” said Vidya Bala, head-mutual fund research, Fundsindia.com.
…but do not jump the gun
Don’t blindly go by the change in your fund category. Mirae Asset Emerging Bluechip Fund (MEBF)—an erstwhile mid-cap fund—has become a large- and mid-cap fund. The name remains the same, and, what’s more, the fund remains the same too.
On the face of it, a shift from a mid-cap to a large- and mid-cap fund is a big change. But dig a little deeper and you might not want to worry about it. According to capital markets regulator Securities and Exchange Board of India (Sebi), a large- and mid-cap fund must invest a minimum of 35% each in large- and mid-cap stocks. As it turns out, MEBF has been increasing its exposure to large-cap companies over time; from an average of 20% in 2014 and 26% in 2015 to 38% so far this year, as per Value Research.
“We didn’t want to tamper our existing portfolios too much. So, whichever categories our funds fitted into naturally, we have moved our funds there,” said Swarup Mohanty, chief executive officer, Mirae Asset Global Investments (India) Pvt. Ltd. HPF, too, remains the same. Although a dynamic category fund can switch entirely between equity and debt, a person close to HPF said it can—and will—continue to invest 65-70% in equities like always. Of course, how the fund performs in falling markets in the face of its present equity allocation remains to be seen as the fund will now be compared to other dynamic funds. HPF refused to comment.
The tax implications
If your scheme merges with another or ceases to exist, there are no tax implications. If, however, you choose to withdraw, you may have to pay short-term capital gains tax of 15% (plus surcharge and cess) if you had bought the units in the past one year or long-term capital gains tax, otherwise.
The only respite is you don’t pay an exit load, if any, even if you withdraw within the exit load period.
What should you do?
Each merger and re-categorisation poses a unique situation. How one investor reacts to a change could be different from another investor’s reaction. Sit with your financial adviser to understand the ramifications of your scheme changes. But here are some broad principles you should follow.
* If your scheme’s risk profile increases a little, there is no cause for alarm. For instance, a large-cap fund becoming a large- and mid-cap fund is acceptable. If your scheme’s risk profile increases a lot, take a closer look. For instance, SBI Magnum Equity Fund (a large-cap fund) is now a thematic fund SBI Magnum Equity ESG (Environment, Social, and Governance).
* Just because the fund has changed its category or name does not necessarily mean the scheme has changed. Check if the scheme will continue with its strategy.
* But if the scheme’s objective has changed—especially due to a merger with some other scheme—evaluate it. HDFC Gilt (government securities) Fund – short-term plan will now be merged with HDFC Corporate Bond Fund. Both schemes are different.
* New investors, beware. Past performance is set to become a bit hazier, especially for those schemes that have to alter their strategies, for the next three years. In this case, check who the fund manager is, and go by his track record.
* Debt funds are trickiest to navigate in this exercise. The good news is that they’ve become sharper and each of them now comes with a well-defined objective. Revamp your entire debt schemes portfolio.
By SiliconIndia | Tuesday, May 1, 2018
A Systematic Investment Plan (SIP) is the best investment option for many investors – especially if you’re a young person, just beginning your investment journey. A SIP is a low-risk move, ideal for those who are in it for the long haul because else, the returns tend to be low. A steady investment of even Rs.500 per month has the potential to generate decent returns in the long run without putting a major dent in your pocket. But like all other investment options, it’s never wise to put in your money unless you’re well informed. Here are some things you must keep in mind when investing in Mutual Funds via SIPs.
– What exactly is a SIP?
A SIP lets you invest small amounts regularly in equities, debts and other kinds of mutual funds. It involves you buying units of any (or many) Mutual Funds of your choosing by investing a minimum of Rs. 500 per month. It is then up to you to redeem your units at any point in time. A SIP is ideal for younger investors since it practically guarantees good returns with a lower risk of capital loss. It bridges the gap between high-risk options like equities and low-risk options which may not produce returns.
– The Power of Compounding
There is a thumb rule talking about investments. The truth is that the longer you keep your money in a fund, the more money is likely to be generated over time. This is where young investors have an edge over older ones. If you’re 40 and want to begin investing in a retirement fund, you’re 18 years behind those who began at 22. The 22-year olds are likely to generate higher returnsprimarily because of the compounding effect. Start as early as possible.
– Be Informed
No investment option is completely risk-free and investing in the wrong fund may end up being a grave error. You can never be too careful with where to put your money. It’s always better to look at the past performance of any mutual fund you decide to put your money into. Of course, this is not possible if it’s a new mutual fund. Try to ensure that the mutual fund you pick has been around for a few years at the very least before investing your money. You don’t want to be risking letting it all go to waste, do you?
Your fundsare distributed into a set of pre-decided companies from numerous sectors. These companies are usually mentioned in the prospectus, and you’re free to check up on them. In the interest of staying informed, it is advisable to check out all the companies mentioned.After all, it’s your money that will help fund its future endeavors, and you have every right to know what it’s being used for. Read up on the companies, the industries and the sectors that your mutual fund is investing in, and analyze whether they are ones you’re comfortable with, or if they’re ones you’d like your money to be invested into.
– Your Own Goals
Don’t just start investing because it’s the “in” thing and everyone around you is doing it. If you really want to gain from your investment, align it with your goals. Whether that goal is to buy your dream car after 10 years or to generate enough capital to start your own business in 15 years, or even go to the vacation you always wanted – your end goal and the money it’ll require should be fixed in your mind as early as possible. Once that’s settled, you can go about looking at what exactly to invest in and how much to put into it every month. For example, if your goal is to buy a car costing ?30 lakhs in 15 years, you can’t invest in something that’ll give you any less than that at the given time.
– Market Risks
Mutual Funds Schemes can be considered low-risk and safe to the extent that they are regulated by the Securities and Exchange Board of India (SEBI), and the fact that companies must have a minimum net worth to be eligible for mutual fund investments. However, fraud is a very real possibility and the less informed can easily be ensnared. Technicalities are everything here, so always read the terms and conditions thoroughly. Only pick a SEBI registered investment adviser.
– Choosing the Right Scheme
Mutual fund selection depends on the kind of an investor you as an individual, are. If your goals are long-term and you can handle risk, you could invest in equity schemes. If you’re more of a moderate investor with a lower of appetite for risk, you should consider investing in large cap or multi-cap mutual funds (that is, large companies or multiple companies) which tend to have lower exposure to risks. This is because such funds are channeled into companies which are comparatively stable. If you’re more aggressive and don’t mind the risk, invest in small cap or mid cap funds instead.
– Choosing the Right Bank and Date
This may not look very significant, but it’s actually pretty important. The general practice is for the plan to directly take money from your bank account monthly (or at whatever regular interval you have fixed). So, the date you fix should be keeping in mind that the account isn’t low on funds when the money is cut. Keep your balance at a minimum of at least the investment amount, and make sure you set the date of investment as one which is placed after you get your income (salary, rental income, etc.).
Be careful not to use an account that you hardly use otherwise, sincethere’s a higher chance of it running into issues of insufficient funds around the time your SIP debit is due.
Get Started Now
Once you’ve understood these essentials of mutual fund investments, it gets fairly easy to take a plunge as an investor and start crafting your investment goals. Get started now. The sooner you do, the more the returns! Remember the power of compounding?
Balanced Funds have an overall equity spread of almost 65% either in the large, mid or small cap stocks.
Navneet Dubey | Apr 04, 2018 11:27 AM IST | Source: Moneycontrol.com
Balance funds are the funds which have exposure to two main asset classes – equity and debt. This fund gives you exposure to stocks as well as money market instrument. These funds have the equity orientation as around 65% of your monies get invested in equity and remaining 35% in debt funds. The risk associated towards equity exposure is almost of the same amount as the risk is associated with any normal equity fund do have. So, are these balanced mutual funds really ‘balanced’ enough? SEBI has recently proposed to change the name of the balanced fund into three categories – Aggressive Hybrid Fund, Balanced Hybrid Fund and Conservative Hybrid Fund.
We bring you the main features of balanced funds and tell you how to go about making the most of your investment in them:
What does the equity spread consist of?
Balanced funds have an overall equity spread of almost 65% either in the large, mid or small cap which can be extended even towards micro-cap funds. Having flexibility towards too many categorisations, the fund manager gets the liberty to choose stocks, however, that may welcome more risk to your portfolio. Therefore, check the holdings before investing in these balanced funds as the range between mid-caps to micro-cap can be risky if you are a conservative investor.
What are new balanced funds?
As per the regulator (SEBI), the categorization of these balanced funds will get further differentiated into various sub-heads to provide more clarity to mutual fund investors. These can be termed as follows:
The Aggressive Hybrid Fund: It will invest in equities & equity related instruments between 65% and 80% of total assets and debt instruments between 20% and 35% of total assets.
The Balanced Hybrid Fund: It will invest in equities & equity related instruments between 40% and 60% of total assets and debt instruments between 40% and 60% of total assets. However, no arbitrage would be permitted in the scheme.
The Conservative Hybrid Fund: It will invest in equities and its related instrument between 10% to 25% of overall assets and debt instruments between 75% and 90% of total assets.
Other hybrid funds which investors can further look to make investments can be – Arbitrage fund, Dynamic asset allocation fund and Multi-asset allocation funds.
To provide more clarity to investors, these new categories of balanced funds termed as new types of hybrid funds will help investors to understand their funds in a much better way. Not only this, fund managers will also get clarity to structure their fund as per new rules, getting clear direction as to which stocks to select while designing the scheme. Hopefully, in future, there may be no room for confusion while selecting balanced funds for investing and switching between high risky to a less risky portfolio.
Tax treatment: Debt and equity-oriented funds
Currently, all the balanced funds today are having an average exposure of 65% to equities, they come under the ambit of equity oriented fund. However, in future the new conservative hybrid funds can get debt tax treatment as more of the exposure is tuned towards debt asset class.
However, in overall mutual fund taxation structure, equity funds and debt funds are taxed as below:
Equity Oriented Fund
LTCG: There is no long-term capital gain tax on equity funds after one year if gains do not exceed Rs 1 lakh. However, if capital gains exceed Rs 1 Lakh, the realised amount will get taxed at 10%.
STCG: Short-term gains are taxed at 15%. Where gains are realised within one year.
Debt Oriented Fund
LTCG: These mutual fund schemes are taxed at 20% long-term capital gain tax and
STCG: When realised within 3 years, these are taxed at marginal tax rate where a maximum taxation of 30% can be applied to short-term capital gain tax for both Resident Individuals & HUF.
By Sanket Dhanorkar, ET Bureau|Updated: Oct 16, 2017, 11.20 AM IST
The Securities and Exchange Board of India (Sebi) has asked fund houses to classify their schemes into clearly defined categories. For long, there were no clear guidelines to categorise mutual funds. Fund houses even launched multiple schemes under each category, making scheme selection a confusing exercise for investors. To introduce clarity, Sebi has now asked fund houses to have just one scheme per category, with the exception of index funds, fund of funds and sector or thematic schemes.Mutual funds which have multiple products in a category will have to merge, wind up, or change the fundamental attributes of their products.
Simplification of choice, fewer options
At the broadest level, mutual funds will now be classified as equity, debt, hybrid, solution-oriented, and ‘other’. Equity schemes will have 10 sub-categories, including multicap, large-cap, mid-cap, large- and mid-cap, and small-cap, among others. The stocks of the top 100 companies by market value will be classified as large-caps. Those of companies ranked between 101 and 250 will be termed mid-caps, and stocks of firms beyond the top 250 by market cap will be categorised as small-caps. Debt and hybrid schemes will similarly be grouped into 16 and six sub-categories respectively.
In particular, people interested in debt and hybrid schemes will now be better placed to identify the right schemes. For instance, duration funds have been segregated into four sub-categories, based on the maturity profile of the instruments they invest in. Debt funds belonging to the broader ‘income funds’ category will now be identified as dynamic bond fund, credit risk fund, corporate bond fund, and banking and PSU fund, based on their unique characteristics. Similarly, segregation of hybrid funds—based on their equity exposure—as aggressive hybrid, conservative hybrid and balanced hybrid, will allow investors to better identify the type of hybrid fund they want to invest in.
“Now that scheme labelling is clearly linked to a fund’s strategy, the investor will clearly know what he is getting into. The fund category will define the scheme, and not its name,” says Kunal Bajaj, CEO, Clearfunds. Fund houses will also not be allowed to name schemes in a way that only highlights the return aspect of the schemes— credit opportunities, high yield, income advantage, etc.
Adherence to fund mandate
With strict classification of schemes, fund houses may not be able to alter the investing style or focus of their schemes, as they did earlier. For instance, mid-cap funds stray into the large-cap territory or across market caps, in response to market conditions, which dramatically alters their risk profile. Now, funds will be forced to maintain their investing focus. Any drastic change in style will constitute a change in the fundamentalattributes of the scheme, which would have to be communicated to the investors. For investors, this means they won’t have to worry about their chosen schemes altering mandates to something which doesn’t suit their needs or risk profile.
Better comparison with peers
Distinct categorisation of schemes will also enable a better comparison of funds within the same category. While the earlier largecap funds category had schemes with pure large-cap focus as well those with a sizeable mid-cap exposure, now such distinctly varied schemes won’t be clubbed together. This will further help investors identify the right schemes by facilitating a like-for-like comparison of funds. “All schemes of different AMCs within a similar category will have similar characteristics, which will enable customers to make a better ‘apples to apples’ comparison,” says Stephan Groening, Director, Investment Solutions, Sharekhan, BNP Paribas.
These schemes may be reclassified or merged
The new Sebi norms require funds to have only one scheme per category.
Note: This is only an indicative list. All schemes mentioned may be retained by the respective fund house. There may be other duplicate schemes from other fund houses also. Source: Value Research.
Sharp rise in fund corpus
Since fund houses will now be forced to merge duplicate schemes within the same categories, it may sharply increase the size of certain funds. This could hurt the scheme’s performance. “Some larger fund houses with multiple schemes will have to opt for mergers. This may lead to a sudden, sharp rise in the corpus of schemes, which could dent the fund’s returns,” says Vidya Bala, Head, Mutual Fund Research, FundsIndia. “There could also be an impact cost on the investor, as fund may rebalance or churn the portfolio to ensure the fund aligns with the category norms,” adds Bala. For instance, both HDFC Balanced and HDFC Prudence are aggressive hybrid funds, with a corpus of Rs 14,767 and Rs 30,304 crore. Merging the two will create a Rs 45,000 crore fund. However, it is more likely that the fund house may instead reposition one of the schemes in another category.
Possible fall in outperformance
While the new norms are likely to lead to better adherence to the fund style and mandate, it may result in reduction in alpha—outperformance compared to the index—for some schemes. Funds often tend to stray away from their chosen mandate in the pursuit of generating excess return over the benchmark index. Now, with limited flexibility to stray into another segment, some funds may find alpha generation more difficult than before, reckons Bala.
Need for portfolio review
Since fund houses will now have to align their product suite with these norms, there is likely to be a flurry of activity related to recategorisation of funds. In order to avoid merging certain duplicate schemes, these are likely to be renamed or reclassified into another fund category. Some funds may witness a change in scheme attributes to facilitate its repositioning. As such, over the next 5-6 months, several schemes may change colours. Investors would then have to undertake a thorough portfolio review to ensure their funds continue to meet their requirements, insists Bajaj.
On an average, the gross returns by active funds exceed returns from Nifty by more than 11%. This outperformance is after accounting for the costs of managing an active fund
Nilesh Gupta & G. Sethu | First Published: Mon, Oct 02 2017. 01 59 AM IST | Live Mint
In 1975, John Bogle launched the first ever passive fund, Vanguard 500 Index Fund, and heralded an era of passive investing. Bogle was influenced by Eugene Fama’s view that the capital market was informationally efficient and that sustained success in stock picking was impossible. Since then, trading has increased; more and better investment research is being undertaken; high-speed communication networks have taken away the advantages to a privileged few; and most importantly, institutional investors dominate the markets. In this environment, it is not easy to pick stocks or enter and exit the market successfully and consistently. The torchbearer for passive investing today is the exchange-traded fund (ETF).
In the US, during FY 2003-16, total net assets of equity index funds increased by 3.5 times (from $0.39 trillion to $1.77 trillion), while that of active equity funds increased by just 0.7 times (from $2.73 trillion to $4.65 trillion). More importantly, during this period, a net amount of $1.29 trillion moved out of active equity funds while $0.46 trillion moved into index equity funds. Why is passive investing gaining over active investing? It’s because active investing has not been able to deliver returns (net of costs) that are more than from passive investing. Passive funds posted an expense ratio of 0.09% in 2016 while active equity funds were seven times more expensive with an expense ratio of 0.63%.
The FT reports that over a period of 10 years, 83% of active funds in the US underperform their benchmark, with 40% funds terminating before 10 years.
This global trend prompted us to examine the India story. Since 1992, Indian stock markets have seen many developments. Trading has increased; there are more institutional investors; regulations have improved; transactions have become faster; settlements have become shorter; number of analysts covering the market has increased; communication networks are good. We should expect active funds to struggle to beat the market, right? You could not be more mistaken.
We examined the returns and expense ratios of 448 actively managed mutual fund schemes from the period of FY 1996 till FY 2017, a total period of 21 years. We used their net asset values (NAVs) to compute the returns from holding these schemes for each financial year. Remember that the NAVs of mutual fund are published after deducting all the costs incurred in running the scheme.
In most of the years, when the market booms the active funds beat the index (such as Nifty) by a wide margin. When the market is bearish, their performance is mixed. In some bearish years, they beat the index, but often they lose much more than the index.
On an average, the gross returns by active funds exceed returns from Nifty total returns index by more than 11%. Remember that this outperformance is after accounting for the costs of managing an active fund. What about the costs of managing a mutual fund? The expense ratio for active funds from FY 2008 to FY 2017 averaged 2.32% per annum and for ETFs it was 0.61%, leading to a difference just greater than 1.7%. On an average, in India the extra returns provided by actively managed mutual funds have been much higher than the extra cost charged for delivering the return.
This is in contrast to the data from the US. Even in the halcyon 1960s, active funds in the US beat the market only by about 3%. What are the possible reasons for this outperformance? Some market experts argue that several quality stocks are not part of the index and hence index funds or ETFs cannot invest in them. Some note that the evolving nature of the market is not reflected in the index.
It may also be possible that the relatively smaller size of the mutual fund industry in India could be helping active fund managers get such high returns. In India, the mutual fund industry has only 13% of market capitalization as compared to 95% in the US. It is possible that in the past, mutual fund managers had better information available. If either of the reasons turn out to be true, we might find that, in the future, the actively managed mutual funds do not outperform the market by such large margins.
So, should Indian investors invest their savings in actively managed mutual funds? Irrespective of what the data says, the answer is not so simple. Here we have only considered the average returns of all actively managed mutual funds. A retail investor who is likely to invest only in a limited set of schemes would be concerned about choosing those schemes that give better returns in the future.
This analysis has not considered the risks taken by the mutual funds to get returns. A fund can easily beat the market by taking more risks. We need to compute the risk-adjusted returns to answer this question. On doing that, we may understand how the active funds in India generate such high returns compared to the market index. Is it a story of great fund management skills? Or is it inefficiency of the market? Or is it a case of taking high risks? Investors and the regulator have a responsibility to understand this.
Nilesh Gupta is assistant professor and G. Sethu is professor at the Indian Institute of Management, Tiruchirappalli
Sarbajeet K Sen | Sep 14, 2017 11:37 AM IST | Source: Moneycontrol.com
Poor performance of a fund must set the investor thinking on whether to continue with the investment.
When did you last review your mutual fund portfolio? Maybe a long time ago. Many investors might feel relaxed after investing in mutual funds with the thought that their money is safe with experts trained in investing and stock selection.
However, the mutual funds landscape is a mixed lot. There are good, high-performing funds and there are laggards who are unable to keep up with performance of the leaders.
Did you check which of these category of fund you have invested? If it is one of the top-performing ones, giving you good returns, you need not worry. But if it is one of the funds that have not performed well in comparison, it might be time to think of a switch to another fund.
So when did you last review your mutual funds investment portfolio to know whether it needs a change? If you do it periodically, well and good, but if you have not reviewed for a long time, you should assess how your various fund investments have been performing.
“Investors should review their mutual fund portfolio at least once in 6 months. They should look at the performance of the fund, the sectoral allocation that they chose and whether there have been any big changes,” S Sridharan, Business Head, Financial Planning, Wealth Ladder Investment Advisors
Sridharan says if the review shows that the fund has performed poorly, it should signal a possible exit and switch to another fund. “Poor performance of a fund must set the investor thinking on whether to continue with the investment. However, exit decision should not be based only on performance of the fund. Investors should look at other parameter like what went wrong and whether the fund manager has the capability of revising the portfolio to the positive side in the near future,” he said.
Vikash Agarwal, CFA & Co-Founder, CAGRfunds, says one should avoid unnecessary churn in portfolio. “The essence of money-making is regular investments in well-managed diversified equity mutual funds. One should avoid unnecessary churns in the portfolio which may enhance cost in terms of exit load and tax implications,” he said.
However, Agarwal says there can be multiple reasons which might merit a review and change of one’s mutual fund holdings. Some of these are:
–Continued underperformance of the fund such that the fund is unable to beat its benchmark
-The fund is able to beat the benchmark but the returns are not commensurate with the levels of risk being taken by the fund
-A particular stock/debt instrument holding which forms a significant holding of the fund is likely to underperform due to a fundamental issue. Example: If a fund has significant exposure to a company which has acquired a loss making company, it might merit a deeper review of the fund
–Change of fund manager: In case there is a change in fund manager, then it is useful to review the fund as the fund style and philosophy might undergo a change and it might not be suitable to investment objective anymore
“If your fund is showing such characteristics then it is ideal for you to exit and switch to a better managed fund,” Agarwal said.
Navneet Dubey | Sep 19, 2017 04:18 PM IST | Source: Moneycontrol.com
Equity mutual funds can give you good returns if you keep your money invested over a long period of time to overcome market cycles.
Your dream of becoming a ‘crorepati’ may seem difficult. But in reality, if you plan your finances and invest in the right instruments someday you will have your dreams realised someday. One of the best ways to try and achieve the crorepati dream could be investing in equity mutual funds for good returns over a long period of time. There is a definite correlation between the time and money. If you have less money to invest then you have to wait for a longer time to get your goal accomplished and if you have more money to invest you might reach your goal earlier if you plan and invest properly.
However, before investing in mutual funds, especially –equity MF’s, you should ask yourself two questions:
how much you have to invest and over how long to reach your Rs 1 crore destination.
Here we try to get you answer to both the questions.
How much to invest monthly?
As a young investor, you may easily take a higher risk by saving less amount and gain more returns to achieve your financial goals. While being in the middle of the age, you can take the moderate risk to head toward becoming a crorepati.
Thus, at an early age even if you have less money to invest, you can become crorepati by investing Rs 700 per month (which is the least amount) for 35 years, at an assumed 15% rate of return to accumulate the desired amount.
However if you start later, you need to invest more money to reach your financial goal. For instance, you will need Rs 5500 per month for 25 years, at an assumed 12% rate of return, you will be able to make Rs 1 Crore approximately.
A larger amount of Rs 13,500 per month for 20 years, at an assumed 10% rate of return, will enable you to make Rs 1 Crore.
How to select a fund?
To earn 12-15% of return on your investment, you need to select good equity stocks or one can go for equity mutual funds to mitigate the risk to an extent. While selecting, equity MF, you need also check that your portfolio should have mid-cap/small-cap funds for around 30-40% and the remaining 60-70% should have a diversified fund, a large-cap fund, etc. to maintain an aggressive portfolio with right asset mix.
Whereas to maintaining a return of around 10-12%, you should invest in balanced fund/hybrid fund, etc. to maintain a moderate risk portfolio. In such case, one can avoid or reduce the investment amount in mid-cap/small-cap funds or avoid making investments in risky stocks.
Are there alternatives?
Investing money in pension plans, NPS can also help you achieve this financial goal. However, the returns offered under such schemes are not stable and market linked. Moreover, in some instruments, returns are subject to change as per the government rules. Also, investing in an instrument like fixed deposits, national savings certificate, etc. may not help you achieve the goal within the maximum time period as mentioned thereon.
One should also have to remain invested for a longer time period and follow proper asset allocation strategy to achieve the target amount. It is must to take the help of a financial adviser before making such financial decisions.
In the grid given above, make sure you know that any investment made in equity mutual fund or equity stocks are not guaranteed. The returns are also volatile and not fixed as they are dependent on the financial market.
TIMESOFINDIA.COM | Sep 1, 2017, 12:36 IST
You can invest in mutual funds with amount as low as Rs 500. There is no upper limit for investing in mutual funds. Each mutual fund – be it equity or debt – has certain risk due to volatility and uncertainty in market. Ideally, you should be investing 10-20 per cent of your savings in mutual funds through monthly SIP.
Here are few points that you should keep in mind while investing in a debt or equity oriented schemes:
List down all your short-term and long-term goals in future such as holiday, marriage, children, education of children, retairment etc. Invest more into equities for your long-term needs as it is greatly possible to be aggressive in such cases. For your short-term needs, mutual funds with 1 year lock in can be adopted.
2) Risk capacity
The amount of investment risk you are able to take on is generally determined by your financial condition. Sudden financial shocks such as job loss, an accident etc. can affect your investment decisions by altering the amount of risk you’re able to afford. Your financial commitments such as home loan, business loan, car loan, expenditure in kids education etc. may also affect your investment risk capacity.
When it comes to investing, age is as big factor as the other two mentioned above. The best time to start investing is when you are young. The best time to learn about the markets and how to deal with its risks is when you’re young. Young investors have decades before they need the money. They have more time for their investments to recover and make up the shortfall. Once you are into your 30s and 40s, allocate a greater fraction of your portfolio to minimal risk funds or long-term funds. Also allocate some money to equity funds for your aggressive goals.
4) Fund selection – debt or equity
Debt funds can give you steady returns but in a constant range. Since debt funds invest money in treasury bonds, there’s much less risk associated with them. Debt funds are good investment option when market is volatile. Equity mutual funds give good returns over the long period to time as compared to debt funds. However, the possibility of losses and negative returns is also higher when market is volatile. Equity funds are good when the markets are booming.
You may also consult financial experts before taking final decisions. Mutual fund agents and distributors can also help you in this regard.